How to select a CEO

Rajeev Vasudeva, senior partner at Egon Zehnder International explains the painstaking work that goes into picking the best person.

The big challenge in India is that very few people think about the best way to choose a CEO. To my mind, this is something the board of directors should be pushing for. But very few boards in India focus on it.

In the US now, it is mandatory to talk about succession in annual reports and provide details. A typical, planned succession should begin around two years in advance. This, in case the CEO is retiring or, as at a promoter-run company, the promoter wants to step back and appoint a non-family person to head the organisation.

The process begins with mapping the ‘kind’ of CEO the company would need, say five years from now. In case of the baton being passed from the promoter to a professional, we usually seek some clarity on the role the new person will play vis-a-vis the promoter, as these are not the same.

Once that is done, we spend some time vetting internal options and understanding the strengths and weaknesses of candidates, finally zeroing in on some four or five of them. While no public announcement is typically made, candidates are often told they are potentials for the CEO’s position. This is important, also from the point of view that they don’t leave for better opportunities.

The development needs of frontrunners are looked into, for example, a technical person who might need operational experience, is given a role accordingly. At the same time, we start mapping external candidates. This allows us to scan a broader talent pool and also offers a benchmark against which to compare internal candidates.

A detailed, two-page competency achievement assessment is carried out for the shortlisted external candidates, and is matched up against the capabilities required by the prospective CEO. This list is then presented to the board and three or four candidates are identified.

More due diligence is carried out for the shortlisted external candidates. This could take the form of casual, oneon-one conversations to understand the candidate’s aspirations, motivations and what s/he is looking for in his or her career. This engagement is very discreet and candidates don’t even know they are being put under the scanner.

Often, we create a forum for candidates to engage informally with the promoter so that the latter gets a feel of the person. Finally, there comes a time, when this process needs to be accelerated, somebody leaves and a successor needs to be picked. The credentials of both internal and external candidates are up for scrutiny. The board usually has all the facts and figures.

But this is when frenetic benchmarking and comparisons take place. In situations like this, it is not unlikely that, despite deficiencies, the board may pick an internal candidate over an external one. Once the candidate is chosen, the board tries to retain the other potentials by offering them exciting career opportunities.

Boards do spend some time thinking about this, but there is the constant dilemma of allowing the new CEO the freedom to pick his or her own team. What we have seen is that if the process of picking the candidate is transparent, the chances of retaining him or her is higher.